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Clinker expansion by cement companies.

BACKGROUNDS

The country's cement industry has expanded from year to year to follow the trend in the development of the property and infrastructure sector. The largest consumers of cement in the country are the housing sector.

In 2011, the country's cement production grew 14.4 percent to 45.2 million tons from 39.5 million tons in 2010. The production capacity was recorded at 56,8 million tons per year in 2011 or an increase of t 7.2% from 53 million tons per year in the previous year.

A number of cement producers are seeking to expand their capacity as some of the have been operating almost at full capacity. In addition, demand for cement is expected to continue to grow in the coming years. PT Indocement Tunggal Prakarsa expanded its production capacity by 2.5 million tons to 21.1 million tons per year in 2011. PT. Semen Gresik increased its production capacity by 600,000 tons to 9.7 million tons per year.

The capacity expansion is to keep pace with growing market demand to follow the economic growth and brisker development. In addition some old and inefficient factories need revitalization by replacing machines. Expansion of capacity would improve operation efficiency and make factories more competitive in the market.

Small producers like Semen Kupang, Semen Baturaja, and Semen Bosowa seek to steal a market share in area not covered by big producers such as in eastern Indonesia. Big producers still concentrate in western part of the country mainly in Java which accounts for 55.2 percent of cement consumption in the country. Sumatra is the second largest market of cement accounting for 23 percent, followed Sulawesi and Kalimantan each accounting for 7% of the total consumption.

A number of factors are also considered by investors in building cement factories like the distance of location from market, transport facility and availability of energy or fuel.

Energy is an important factor as energy makes up a considerable part of the production cost. Currently many investors seek to use cheap secondary energy to fuel cement factories.

Currently a critical factor considered in capacity expansion by cement producers is the availability and the price of coal fuel. Cola has been the main fuel for cement factories. Investors or cement producers have asked the government guarantee in coal supply before building new factories. The country is one of the world's largest coal producers but most of its coal production has been exported as the prices are better in international market. In addition many producers have been bound by long term contracts with coal buyers abroad.

TYPES OF CEMENT PRODUCED

There are several types of cement produced in Indonesia. The main type is OPC (Ordinary Portland Cement) or Portland Cement Type I which accounts for 80 percent of the country's total production. Other types include composite and pozzolan cement.

PRODUCTION CAPACITY GROWING 7.2% IN 2011

Based on data at the Indonesian Cement Association (ASI), the country's production capacity increased 10.5% to 53 million tons in 2010 from 47.9 million tons in the previous year. The increase came from five producers expanding their production capacity with an investment of US$ 645.6 million. The new production facilities on line in 2011 included a cement mill of Indocement in Cirebon with a capacity of 1.5 million tons, and reconstruction of the 2004's tsunami destroyed factory of Semen Andalas with a capacity 1.6 million tons in Aceh.

The capacity utilization of the country's cement industry averaged 79.6% in 2011. Privately owned cement factories now are largest in production capacity compared to factories of state companies. They account for 60.5% of the total capacity with state companies having only 39.5% of the total capacity.

In 2011, the country's production capacity rose again to 56.8 million tons or an increase of 7.2%. The additional capacity followed expansion by a number of large producers including France's.Lafarge which built a new factory of PT. Semen Andalas in Lok Nga, Mangrove Aceh Darussalam which came on stream in March 2011 to replace one destroyed by the tsunami in 2004.

Lafarge invested US$300 million to build the new factory with a capacity of 1.6 million tons per year. The factory needs 1.2 million tons of clinker per year.

In 2012, the country's production capacity is expected to rise 6.8 million tons to 63.6 million tons with the construction of new factories by PT Semen Gresik Indonesia, PT Semen Tonsasa, and PT Holcim Indonesia.

The industry ministry has required cement factories to reduce the use of clinker cutting the content from 90% to 80% to be more energy efficient but not reducing the quality to be low SNI.

PRODUCERS

PT. Semen Gresik, Tbk (PT. SG)

PT. SG has 3 factories located in Tuban and Gresik with a production capacity of 9.7 million tons per year. PT. SG has two ports special for cement in Tuban and in Gresik, 1 unit of cement packing plant in Ciwandan, Banten and 11 units of buffer warehouse Java and Bali. In 2011 cement production PT. SG reached 9.7 million tons.

PT. SG acquired PT. Semen Padang (SP) and PT. Semen Tonsasa (ST) in 1995 to join in the Semen Gresik Group (SGG) with 99.9% owned by SG.

SP is located in Indarung Padang, West Sumatra supplying cement mainly for Sumatra. It also supplies cement for Java and exports part of its production mainly to other Asian countries. SP has six cement packing plants in Padang, Medan, Banda Aceh, Batam, Jakarta and Banten. SP also has 14 buffer warehouses a special cement port in Padang's Teluk Bayur, and in Ciwandan of Banten.

SP produces various types of cement including Ordinary Portland Cement (OPC), Portland Pozzoloan Cement (PPC), Portland Composite Cement (PCC), Oil well Cement (OC) and Super Masonry Cement (SMC).

In 2011, its production totaled 6.2 million tons or an increase of 8.7% from 5.7 million tons in 2010.

ST located in Pangkep of South Sulawesi has three units of factories producing the types of OPC and PPC. ST is the largest supplier of cement in eastern Indonesia including Sulawesi, Kalimantan, Nusa Tenggara and Maluku, Papua. ST has 8 units of packing plant in Makassar, Bitung, Samarinda, Palu, Banjarmasin, Ambon and Bali and 5 units of buffer warehouse. ST also has cement special port in Biringkassi.

Currently the total production capacity of SGG is 20.6 million tons per year including PT. Semen Gresik (9.7 million tons), PT. Semen Padang (6.3 million tons) and PT. Semen Tonsasa (4.6 million tons).

In 2011, PT. SG set aside US$ 533 million for capital expenditure. The fund has been used to build a new factories in Tuban, East Java and other factories as well as a power plant in Tonsasa, South Sulawesi.

In 2012, PT. SG sets aside Rp5 trillion for capital spending. Around 20% of the fund would be used to finance the construction of a new factory in Sumatra to cost Rp7 trillion to be disbursed in three years of construction. The construction of the new factory will 70% financed with a bank loan.

Cemex shares sold to Blue Valley Pte. Ltd.

A conflict between the government and CEMEX as co-shareholders of PT SG ended with Cemex selling its 24.9 percent stake in SG to the Rajawali Group through its investment vehicle company Blue Valley Pte. Ltd. at a price of US$ 337 million.

The Rajawali Group, which is owned by tycoon Peter Sondakh acquired the stake after the government said it would not use its right to acquire the stake under conditional sale and purchase agreement/CSPA) signed on 17 September 1998.

Under the agreement co shareholder was the first to receive the offer to buy shares for sales.

With the deal, Cemex also agreed to drop its lawsuit filed with an international arbitrage court against the government.

Currently PT. SG is 51.01 percent owned by the government, 24.0% by Blue Valley Hodings Pte and 24.09 percent by the public.

PT Holcim Indonesia Tbk

PT. Holcim Indonesia Tbk (HI) was, formerly known with the name of PT. Semen Cibinong. Holcim acquired 77.33 percent of PT. Semen Cibinong in 2001. Its name was changed on 1 January 2006. HI has two factories--one in Narogong and another in Cilacap.

Holcim is the world's largest cement producer based in Switzerland. It has stakes in cement factories in 70 countries in the world.

In 2011, HI operated a new factory in Tuban, East Java with a production capacity of 1.7 million tons per year built with an investment of US$ 450 million

The cement production capacity of HI increased to 8.7 million tons in 2011 from 8.3 million tons in 2010. Its production totaled 7.1 million tons in 2011, and most or 64% of the production is disposed of on the domestic market with 36% for exports.

PT. Indocement Tunggal Prakarsa, Tbk (PT. ITP)

PT. ITP was established in 1985 by the Salim Group. In 2001, Heidelberg Cement Group from Germany acquired the majority 65.14 percent stake through its subsidiary Kimmeridge Enterprise Pte. Ltd. In 2003, Kimmeridge Enterprise Pte. Ltd transferred the shares of PT. ITP to HC Indocement GmbH. In September 2006, HC Indocement GmbH was merged into Heidelberg Cement South-East Asia GmbH which became the owner of PT. ITP.

ITP operates 9 factories in Citeureup, Bogor, the second largest unit of factories in the world, 2 factories in Palimanan, Cirebon, West Java and 1 factory in Tarjun, Kotabaru, South Kalimantan. ITP produces various types of cement including PCC, OPC, OWC and White cement. ITP is the only producer of white cement in the country.

By the end of 2010, the clinker production capacity of the company was 15.6 million tons per year and its cement production capacity was 18.6 million tons per year. The operation of new units of cement mill in Palimanan and Citeureup in 2011, brought the total production capacity of the company to 21.1 million tons per year.

In 2008, Heidelberg Cement AG handed over its entire stake in ITP to Birchwood Omnia Ltd. Therefore, shareholders of IPT now include Birchwood Omnia Ltd (51%), PT. Mekar Perkasa (13.03%) investing public (35.97%).

PT. Lafarge Cement Indonesia

It was formerly named PT. Semen Andalas Indonesia, before it was destroyed by tsunami late 2004. In 2007, a replacement was built for its factory. During the time that it could not produce cement it imported cement from Lafarge unit in Malaysia to supply cement in Aceh and North Sumatra, to maintain its market foothold in northern Sumatra.

In 2010, PT SA resumed operation and its name was changed with PT Lafarge Cement Indonesia.

In 2011 the clinker production capacity of the company was 1.2 million tons/year and cement production capacity was 1.6 million tons/year.

PT Semen Bosowa Maros (PT. SBM)

The factory of the company was built in 1995 and c came on stream in April 1999. PT. SBM is owned by local tycoon Aksa Mahmud.

In 2007, PT. SBM completed the construction of a packing plant in Samarinda, East Kalimantan.

By 2011, the clinker production capacity of the company rose to 1.8 million tons per year from 1.71 million tons per year in the previous year. Its cement production capacity also rose from 1.8 million tons to 3 million tons per year. The production capacity includes those of Semen Bosowa Maros 1.8 million tons and Semen Bosowa Batam 1.2 million tons.

In 2011, the cement production of PT SBM totaled 1.9 million tons. The main market of cement production of PT. BSM is eastern Indonesia.

PT Semen Kupang (PT. SK)

PT. SK is a state company coming on line in 1984 in Kupang, East Nusa Tenggara. In 2011, its clinker production capacity was 300,000 tons per year, and cement production capacity was 570,000 tons per year. PT. SK is wholly owned by the government.

PT. SK has been outdated in technology that it is no longer competitive and efficient. The company then built a new second factory, but it still could not operate efficiently. The company, therefore, was facing financial problem and was forced to stop operation. By the end of 2007, PT. SK resumed operation with financial injection from the state budget of Rp 50 billion. The fund was used as working capital and to buy new spare part for the new factory Semen Kupang II and to pay for coal fuel from Kalimantan. The main market of PT. SK is East Nusa Tenggara.

PT Semen Baturaja (PT. SB)

PT. SB is wholly owned by the government. PT SB is located in Kota Baturaja, South Sumatra having three packing plants in Ogan Komering Ulu (OKU), Tarahan (Lampung), and Kertapati, Palembang.

In 2011, the production capacity of PT. SB was 1.250 million tons of clinker per year and 1.2 million tons of cement per year.

PT. SB produces Portland I with the brand of Semen Tiga Gajah. The basic material is abundantly available in Baturaja. Its main markets are southern Sumatra including South Sumatra, Lampung, Jambi and Bengkulu and Banten in Java.

SB plans to sell 30% of its share through initial public offering (IPO). It hopes to raise Rp1 trillion from the share sales planned in 2013. The fund will be used to build a new factory South Sumatra with a production capacity of 1.5 million tons per year. The new factory is to maintain its market foothold. It hopes to maintain its market share of 29% in the region in 2013. The new factory will need an investment of Rp 2.35 trillion which will include Rp1.3 trillion in loan.

The company also built a new cement mill with a capacity of 300,000 tons per year to cost around Rp 325 billion. The new mill built in its complex in Baturaja came on line in 2011.

ENERGY REQUIREMENT

Cement factories need large supply of energy in the process of production. Energy makes up 40%-50% of its production cost including for heating and power plant. Currently most cement plants use coal for fuel. Coal consumption in the country, therefore, has increased rapidly. Lately some cement factories begin to use charcoal or husk for fuel.

Coal consumption by cement industry in the country 2011 totaled 7.6 million tons. The consumption is forecast to rise again in the coming years with more cement producers planning expansion of production capacity. In 2010, there were five cement producers coming in line or expanding capacity including PT. Semen Andalas Indonesia, PT Semen Padang, PT Indocement Tunggal Prakarsa Tbk, PT Semen Gresik and PT Semen Tonsasa, which is expanding capacity and building new factory with an investment of US$ 645.6 million to be operational in 2012.

Most of the new factories will be built outside Java. The problem outside Java is shortage in power supply forcing cement factories to build their own power plants to guarantee power supply.

SG for example needed coal for 10 coal-fired power plants with a total capacity of 410 Megawatts (MW) operational in 2011. The power plants are needed to support its plan to expand capacity until 2012. In 2012 the production capacity of SGG will be increased to 23.9 million tons.

SG has established a subsidiary PT SGG Energi Prima to be in charge of coal procurement for its cement factories.

The entire factories of Semen Gresik Group needed 4.2 million tons of coal in 2011. This year the requirement is predicted to rise with the growing number of its factories including new ones in Tuban and Tonasa, Pangkep, South Sulawesi.

In long term the country's cement industry will increase the capacity of its power plants to 200 MW to support capacity expansion by 14.5 million tons, from 44.89 million tons to 59.39 million tons in a 2015.

Indonesia has one of the largest coal reserves in the world that cement producers should not worry about coal supply in the future, but most of the country's coal production have been exported resulti8ng in constraint in coal supply in the country. In 2010, the country's coal production totaled 275.2 million tons, and 188 million tons of which were exported. In 2011 the coal production rose to 290 million tons, but supply on the domestic market was still short of requirement.

PRODUCTION OF CEMENT TOTALED 45.2 MILLION TONS IN 2011

The country's cement production has continued to increase--reaching 45.2 million tons in 2011, up from 39.5 million tons in the previous year or an increase of 14.4%.

The global crisis since late 2008, resulted in weak demand for cement in export market. Indonesia has exported cement to Srilanka, Bangladesh, Maroco, Madagascar and Middle East. Indonesian producers compete sharply in international market such as with Thai producers.

In 2012, the country's cement production is forecast to reach 60 million tons with additional production from a number of new factories.

PRODUCTION PER COMPANY

In 2011 all producers increased production to meet growing demand.

Production of ITP was recorded at 18.6 million tons in 2011 or an increase of 23.2% from 15.1 million tons in the previous year. However, exports by ITP declined to 25,300 tons from 28,300 tons because of high demand on the domestic market. ITP's market share also rose to 33.4 percent in 2011 from 31.8 percent in 2010 as a result of an increase in production from its new factories.

Semen Gresik Group recorded an increase in production,--Semen Gresik to 9.8 million tons in 2011 from 8.9 million tons in 2010, Semen Padang surging to 6.2 million tons from 5.7 million tons and Semen Tonsasa from 3.7 million tons to 3.9 million tons.

PT. Holcim Indonesia (PT. HI) recorded a sharp increase in production from 5.6 million tons in 2010 to 7.2 million tons in 2011.

PT. Semen Kupang and PT. Lafarge Cement Indonesia (formerly PT. Semen Andalas) suspended operation in 2010 and 2011 on financial problem and process of rebuilding factory.

SEMEN GRESIK GROUP HAS A 4% SHARE OF THE MARKET

In 2009 the Semen Gresik Group (GSG) had the largest market share of 44% in the country. GSG groups Semen Gresik with production of 9.8 million tons (with a market share of 21.7%), Semen Padang with production of 6.2 million tons (13.7%) and Semen Tonsasa 3.9 million tons (8.4%).

The second largest in market share was Indocement with production of 15.1 million tons or a market share of 33.4%, followed by Holcim Indonesia with a market share of 15.7% or a production of 7.1 million tons.

Other smaller producers included Semen Bosowa Maros producing 1.9 million tons (4.2%) and Semen Baturaja 1.2 million tons (2.7%). Semen Andalas and Semen Kupang had no record of production in 2011. Semen Andalas was still in the process of acquisition by Lafarge, and Semen Kupang was beset by financial problem.

SGG, ITP and Holcim have continued to dominate the market.

EXPORTS--IMPORTS

Most of Indonesia's cement production is disposed of on the domestic market. A small part is exported. In 2011, exports made up 2.5 percent of the total sales.

Exports in 2011 totaled 1.187 million tons down 59.1 percent from 2.904 million tons in 2010.

ASI said producers are not interested in exporting their production as the prices are not good on tight competition in international market.

In 2011, Holcim Indonesia exported 78,300 tons of cement, the largest compared to exports by other producers.

Exports by the SGG have been made mainly by PT. Semen Padang as it has better export price. PT. Semen Tonsasa, another subsidiary of SGG, exported 76,800 tons in 2011. Total exports by the SGG reached 96,000 tons or down 65.3 percent from 276,800 tons in 2010.

Semen Gresik has exported cement to South Africa and Middle East. Around 10% of SGG's exports are made to the two regions, where SGG has established good market foothold. Semen Padang exports cement to Sri Lanka, the Maldives and Bangladesh. Semen Tonsasa has exported only to Timor Leste.

The largest countries of destination are in Asia. In 2010 and 2011, the largest countries of destination were Bangladesh. Exports to Bangladesh totaled 520,600 tons in 2011, up from 451,100 tons in 2010. Bangladesh has imported cement from Indonesia since 2002.

Exports to Australia totaled 218,300 tons in 2011.

CEMENT CONSUMPTION IN 2011 TOTALED 47.9 MILLION TONS

Cement consumption in the country has continued to increase though the growth rate tended to fluctuate to follow the economic trend.

In 2011, a high growth of 17.7 percent to 47.9 million tons was recorded in the domestic consumption of cement, up from 40.8 million tons in 2010. The surge in consumption followed brisk property development. Demand also increased from infrastructure projects of the government. The relatively favorable economic condition in 2011 contributed to expansion of cement industry. Big property and infrastructure mainly toll road projects were built in 2011. The government has number of big infrastructure projects under the program of Master Plan of Acceleration and Expansion of Indonesian Economic Development (MP3EI). The condition necessitated an increase in supply of cement in the country.

It is predicted that in 2012 cement consumption would grow by a higher rate than in 2011 with the property and infrastructure sectors remain the largest consumers. This year cement consumption is forecast to reach 54 million tons, or an increase of 12.7 percent.

Capacity utilization of cement industry is also expected to rise to 85%-90% from 80% in 2011.

CONSUMPTION GROWTH HIGHER IN OUTER REGIONS

Java has become the largest market for cement in the country. Java accounts for around 55.2% of the country's cement consumption.

The highest growth of consumption, however, was recorded in Sulawesi in 2011--up 15.8%. In 2011 other regions outside Java such as Nusa Tenggara and Kalimantan also recorded a high growth in cement consumption up 19% and 17% respectively .

The shift in growth from Java to other islands followed the brisker development of infrastructure projects needing cement in the outer regions. Meanwhile, the growth of infrastructure projects needing cement in Java has slowed down.

With the growing cement consumption in the country, the prospects of business in cement industry are expected to remain good. In 2012, ASI predicted cement consumption in the country would grow 10% - 12% to 54 million tons. The growth is attributable to property projects mainly housing projects and infrastructure projects financed by the government. In 2013, ASI predicted cement consumption would grow 10%.

RAPID EXPANSION

The growing consumption has encouraged producers to expand their capacity by building new factories or expanding production capacity through optimization. Some producers build new factories outside Java such as Sulawesi in Tonsasa, Maros, etc.

A number of new factories are expected to come on stream in 2013 and 2014.

PT Semen Gresik has built new factory with a production capacity of 2.5 million tons per year. The new factory in Tuban, East Java, was built with an investment of Rp3.5 trillion starting production earlier this year.

PT Semen Gresik Tbk is also building a cement factory in Manokwari, Papua, with a capacity of 600,000 tons to cost around Rp1.2 trillion. It also plans to build a packing plant and a 150-meter quay in that area that could be used by ships of 10,000 dead weight tons (DWT).

PT Semen Gresik Tbk has also built new factories, SGG-III, in Sumatra and SGG-IV in Java each with a production capacity of 3 million tons per year, to cost Rp3.25 trillion (US$352.09 million) and Rp3.717 trillion (US$402.59 million) respectively.

PT Indocement Tunggal Prakarsa Tbk is building a new cement mill with a capacity 2 million tons per year in Citeureup, Bogor, West Java to come on stream in 2013. In 2014, Indocement hopes to start operation of a new factory in Bau-bau, Southeast Sulawesi with a capacity of 1.9 million tons per year.

The entire factories of Indocement have a total production capacity of 21.1 million tons per year. The factories are located Citeureup, Palimanan, and Tarjun Kotabaru. It also has 17 factories producing ready for use concrete in Jakarta, Bogor, Depok, Tangerang, Bekasi, and a number of cities in Central Java with a total capacity of 1.3 million cubic meters per year.

Holcim Indonesia, a local unit of Holcim Ltd from Switzerland, the world largest cement producer, also plans to increase production. Currently Holcim Ltd relies expansion on its units in emerging markets in Asia and Latin America.

Holcim Indonesia plans to build a new factory with a capacity of 1.7 million tons per year. The new factory to be built in Tuban, East Java, will cost around US$ 450 million. It will have a loading and unloading port to be operational in the first half of 2013. The factory will support market expansion by Holcim in East Java, Bali, Kalimantan, and Eastern Indonesia.

The new factory in Tuban will add to the production facilities and distribution systems Holcim already in the country. Holcim already has two cement factories one in Narogong of West Java, and another in Cilacap of Central Java. It also has a cement mill center.

Currently Holcim Indonesia has a production capacity of 8.3 million tons per year from its two factories. The new factory will increase the production capacity to 10 million tons per year.

PT Semen Baturaja plans to build a cement mill with a capacity of 300,000 tons per year to cost Rp 350 billion. The factory to be built in Baturaja, South Sumatra, will come on stream by the end of 2012.

Semen Baturaja cooperates with Loesche GmbH of Germany to provide the machines of the cement mill at a price of 7.9 million euro. The machine could process ordinary Portland cement up to 125 tons per hour and Portland composite as much as 130 tons per hour.

PT Semen Baturaja also plans to build a new cement factory with a production capacity of 1 million tons per year in the first phase to come on line by the end of 2012. The factory will be built in Muaradua, Ogan Komering Ulu, South Sumatra over an area of 3,000 hectares with a limestone hill that could supply it with the basic material over a period of up to 150 years.

Currently Semen Baturaja has three factories with a total production capacity of 1.250 million tons per year, respectively located in Baturaja and Palembang, South Sumatra, and in Panjang, Lampung.

In 2011, the Lafarge Cement from France acquired the entire shares of PT. Semen Padang, which was then renamed PT. Lafarge Cement Indonesia (PT.LCI). In mid 2011 PT. LCI built a new cement factory with a capacity of 1.5 million tons per year. The new factory was built with an investment of Rp 5 trillion in Langkat, North Sumatra. PT. LCI chose the location in Langkat as it has large reserve of basic material enough to supply it for 30 years.

PT. Semen Bosowa Maros (BSM) in 2011 started construction of a new factory with a capacity of 1 million tons of cement per year. The new factory is located in Maros, South Sulawesi built with an investment of US$70 million including the cost of buying a cement ship at a price of US$ 50 million.

Currently SBM has factories in Maros and Batam with a total production capacity of 3.5 million tons per year. The capacity addition from the new factory will bring the total capacity of the company to 4.5 million tons per year.

There are also new investors in cement industry in the country. Siam Cement Group from Thailand through local unit, PT Semen Jawa, built a new factory with a capacity of 1.8 million tons per year. The factory is located in Sukabumi, West Java with an investment of US$300 million. The factory is to start operation by the end of 2012 and its entire production would be for domestic consumption.

Anhui Conch Cement Company Ltd or Conch Group from China plans to build 4 factories in Kalimantan and Papua with a total investment of US$ 2.35 billion.

China Trio International Engineering Co Ltd from China will build a cement plant with a capacity of 1.5 million tons per year in Subang, West Java.

State Development and Investment Corp will build a cement factory in Papua with a capacity of 1 million tons per year.

A cement factory needs large power supply. Around 112 kWh (kilowatt per hour) are needed to produce a ton of cement. An addition of capacity of 5.38 million tons, therefore, will need additional supply of 602.56 megawatt (MW) of electricity. To support expansion of capacity, cement producers have to build own power plants as supply from PLN is not always reliable.

PRICES

Energy is a major cost component for cement industry. An increase in energy price would push up the production cost of cement.

The prices of cement on the domestic market rose 10 percent on the average early in 2012. The increase in the electric tariff would push up the price of cement.

ITP has power plants to meet 20 percent of its total energy requirement. ITP has always maintained the position of a price leader in main markets resulting in slower growth of the company in sales especially when the prices are on the decline.

MARKETING

Cement marketing in Indonesia is determined by the location and the production capacity of the factory. Location is determinant as the transport cost could be higher than the value of the real cement when it is too distant to the market.

The production capacity of a cement factory is also determinant in the capacity to supply the market.

Big producers including GSG plan rationalization of the market by dividing the markets considering the transport cost and production cost. Market division would place PT. SG among the SGS members as the main supplier for Java and the Riau Islands especially Batam.

The Batam market is supplied from Tuban as the transport cost is 75 percent cheaper than from Semen Padang.

Semen Tonsasa will strengthen its market foothold in Sulawesi, and eastern Indonesia and Semen Padang will be the main supplier for export markets mainly East Asia and Middle East. Buyers in East Asia and Middle East will be served Semen Padang.

The distribution system of SG is supported by 30 units of warehouse in strategic areas with 15 packing plants to facilitate distribution all over Indonesia.

Meanwhile, 95% of Holcim's cement production is disposed of in Java market amid the increase in transport cost to outer regions.

Java is expected to remain the market target for cement producers on transport efficiency. In 2011, cement sales in Java totaled 26.5 million tons.

PT. Holcim Indonesia (HI) for the time being will concentrate on strengthening its market foothold only in Java. After having two factories--in Narogong (Bekasi, West Java) and Cilacap (Central Java--HI will build its third factory in Tuban, East Java to be completed in 2013. The additional capacity will be used to supply cement to East java, Bali and Kalimantan.

Currently PT. HI is seeking to expand its market by strengthening its distribution systems.

HI is focused more on dealing with retail market than corporate buyers. Before being acquired by Holcim, Semen Kujang concentrated marketing more on projects and Semen Nusantara was focused more on retail market.

Semen Kujang, however, failed to expand as it was confronted with big competitors. After being acquired by Holcim it has changed marketing focus to retail markets, although retail market has also been crowded with brands belonging to big producers like semen Gresik of PT. SG and semen Tiga Roda of PT. ITP.

HI offers franchise partnership to investors interested in cooperation to develop retail business opening building material stores with the brand of Solusi Rumah. Consumers could consult with the stores on designs of new houses or on renovation of houses. The house to be built using Solusi Rumah is faster and 20% cheaper, HI said.

The investing partner could buy the franchise at prices ranging from Rp50 million to Rp700 million covering all consultation on house construction. The partners will be trained and they are expected to recover their investment in 3.5 years. Until 2011, there were 270 outlets of Solusi Rumah in Java. Under this concept HI targets to open new outlets to bring the total number to 400 units in 2012.

A subsidiary of HI, PT Holcim Betons, offers franchise system in concrete industry in Indonesia. Investment needed to open a franchise is around Rp3.5 billion. With the investment an investor could produce 24,000 cubic meters of concrete per year. HI also provides technical support to run the concrete business. The investor is required to pay Rp150 million in joint fee in 5 years and 2% of the nest sale.

COMPETITION

The GSG was the market leader in 2011 with a market share of 40.8 percent, followed by ITP with a market share of 31.5 percent and HI with a market share of 15.5 percent.

In 2011, Semen Tonsasa, a member of the GSG had a market share of 7.9% dominating the market in eastern Indonesia (KTI).

Producers having a market share of less than 15 percent with capacity utilization of less than 80% like PT. SB, and PT. BSM could still increase their market share by optimizing their capacity.

However, such steps is effective only in short term especially as big producer like GSG also plans to increase its production capacity to 23.9 million tons in 2012. Increasing market share in long term could be made by expansion of production capacity such as planned by PT. HI.

With capacity of 20.6 million tons in 2011, GSG was the largest cement producer in the country. In 2011, GSG had a market share of 40.8%. In 2012, GSG is set to increase sales by 15.3% to 22.6 million tons.

GSG and ITP remain close rivals in the market. ITP recorded an increase in sales to 15.1 million tons in 2011 from 12.6 million tons in the previous year. Sales by PT. SG in 2011 totaled 9.9 million tons up from 8.9 million tons in the previous year.

PROSPECTS

Cement consumption in the country is expected to continue to increase form year to year especially there is substitute for cement. Demand will increase especially from the construction and property sectors.

Consumption is forecast to grow 6% a year to follow the trend of economic development. The annual growth is quite healthy for the industry.

A number of big producers have drafted plan for capacity expansion until 2013 through construction of new factories. Among the new factories is Tonsasa V of Semen Tonasa with a capacity of 2.5 million tons to be operational in 2011, Tuban V with a capacity of 2.5 million tons of Semen Gresik to be operational in 2012, Indocement to have a new factory with a capacity of 1.5 million tons in Citeureup to be operational in 2012.

A cement factory needs to have a production capacity of 2.5 million tons per year to be feasible at present. Investment per ton of production is US$ 125 that a factory will need an investment of US$ 312.5 million.

Construction of a new cement factory will take 2 to 3 years depending on the capacity. Investors will build a factory to be operational at a time when demand is at least level with the country's total capacity. The positions of capacity and demand are expected to remain unchanged for five years after the factory comes on line. Too large capacity will add burden in maintenance cost and opportunity cost.

Based on assumption that demand for cement will grow 5 percent a year until 2015, with exports 3.5 million tons a year, the production capacity of a factory 2.5 million tons a year and capacity utilization averaging 95 percent, and capacity expansion needed every 2-3 years, capacity expansion would be needed in 2013 and 2015 by 2 million-5 million tons a year.
Table-5
Types of cement produced in Indonesia

Type of Characteristic Uses
cement

Portland This type of cement is
Type I used for general
 construction like
 houses, multi storey
 buildings, bridges,
 roads, and as
 feedstock for asbestos
 and ferro cement.

Portland Better resistance to Used for buildings
Type II sulfate located in areas
 closed to water such
 as ports, quay, dams,
 etc.

Portland Dry quickly and hard Used for buildings
Type III to sustain high needing strength to
 pressure. sustain early high
 pressure after casting
 and fast completion
 such as road
 construction, bridges
 and airports.

Portland Used for construction
Type IV which needs low
 hydration heat such as
 big dams, thick
 concrete construction
 in dry locations.

Portland Providing better Used for construction
Type V protection against of pools for chemical
 corrosion from water industrial waste,
 and soil containing buildings in sea,
 sulfate more than etc.
 0.20%

Oil Well Could harden normally Used for construction
Cement in oil wells having of oil and gas wells
 high temperature having certain depth.

Portland Easily used, lower For general concrete
Composite Cement temperature in construction, with
 building concrete will stone and bricks,
 reduce cracks, the cementing, gutters,
 surface of the roads, concrete
 concrete smoother fences, pre stressed
 , water resistant, buildings,
 sulfate resistant and prestressed concrete,
 having high capacity concrete panels,
 to sustain pressure. paving blocks, etc.

Portland Resistant to sulfate For two-three floor
Pozzolan Cement and moderate hydration buildings, general
 heat concrete construction
 , mass concrete
 construction like full
 plate foundation and
 dams, building
 construction in
 coastal areas swampy
 area and buildings on
 ground containing
 aggressive sulfuric
 salt and building
 construction needing
 high water tightness
 such as sanitation
 construction, water
 construction and water
 pools or reservoirs.

White Cement Bright color Used as material for
 terrazo tiles, or as
 cement for laying
 ceramics and other
 decorative ornaments

Super Masonry Housing construction Used in the production
Cement and water works with of hollow brick tiles,
 concrete structure of paving block, and
 not more than K225 floor tiles

Sources: Indonesian Cement Association (ASI), Data Consult

Table-6
Production capacity of Indonesia's cement industry,
2002-2011

 Capacity ('000 tons/year)

Year Clinker Cement Growth (%)

2002 44,425 47,490 --
2003 44,425 47,490 0.0
2004 43,340 47,490 0.0
2005 42,690 46,090 -2.9
2006 40,730 44,890 -2.6
2007 40,730 44,890 0.0
2008 39,288 44,009 -1.9
2009 40,899 47,975 9.0
2010 43,257 53,010 10.5
2011 43,670 56,820 7.2
Rata-rata 2,1

Sources: ASI, Data Consult processed

Table-7
Factories owned by Semen Gresik Group
2011

Name of companies Number of Total production
 factories (units) capacity (million tons)

PT. Semen Gresik 3 9.7
PT. Semen Padang 4 6.3
PT. Semen Tonsasa 3 4.6
Total 10 20.6

Sources : PT. Semen Gresik

Table-8
Shareholders' composition of Semen Gresik, 2011

Shareholders %

The Indon. government 51.01
Blue Valley Holdings, Pte 24.90
Public 24.09

Sources: Semen Gresik, Data Consult processed

Table-9
Shareholders of PT. HI

Shareholders %

Holcim 77.33
Public and creditors 22.67

Sources: Data Consult

Table-10
Factories owned by ITP, 2011

Name of factories Number of Total production
 factories (units) capacity (million tons)

Citeureup 9 15,9
Palimanan 2 2,6
Tarjun 1 2,6
Total 12 21,1

Sources : PT. Indocement Tunggal Prakarsa

Table-11
Shareholders of ITP, 2011

Shareholders Number of shares (units) %

Birchwood Omnia Ltd 1,877,480,863 51.00
PT Mekar Perkasa 479,735,234 13.03
Public 1,324,015,602 35.97
Total 3,681,231,699 100.00

Sources: PT. Indocement Tunggal Prakarsa

Table-12
Cement producers in Indonesia and capacity, 2011
('000 tons)

Companies Coming Clinker Cement
 on line

PT. Semen Gresik, Tbk 1957 7,880 9,700
PT. Semen Padang 1910 5,610 5,410
PT. Semen Tonsasa 1968 3,680 4,600
PT. Holcim Indonesia/ ex. PT. Semen 1975 6,400 8,700
 Cibinong
PT. Indocement Tunggal Prakarsa, Tbk 1975 15,600 21,100
PT. Semen Bosowa Maros 1999 1,800 3,000
PT. Lafarge Cement Indonesia 1982 1,200 1,600
 (formerly PT. Semen Andalas)
PT. Semen Baturaja 1980 1,200 1,250
PT. Semen Kupang 1984 300 570
Total 43,670 56,820

Sources: ASI, Data Consult processed

Table-13
Coal requirement for cement industry

Year Coal requirement
 (million tons)

2008 6
2009 7
2010 7.6
2011 8.8

Sources: ASI

Table-14
Indonesia's cement production, 2002-2011

 Designed capacity Production
 ('000 tons/y) ('000 tons)

Year Clinker Cement Clinker Growth Cap. Util.
 (%) (%)

2002 44,425 47,490 33,248 -1,9 75
2003 44,425 47,490 32,629 -1,9 73
2004 43,340 47,490 34,886 6,9 80
2005 42,690 46,090 34,004 -2,5 80
2006 40,730 44,890 34,970 2,8 86
2007 40,730 44,890 35,914 2,7 88
2008 39,288 44,010 37,680 5,1 96
2009 40,899 47,975 35,375 -6,1 86
2010 43,257 53,010 34,515 -2,4 80
2011 43,670 56,820 37,539 8,8 86

 Production
 ('000 tons)

Year Cement Growth Cap.
 (%) Util. (%)

2002 30,720 -1.2 65
2003 30,647 -0.2 65
2004 33,230 8.4 70
2005 33,917 2.1 74
2006 33,032 -2.6 74
2007 35,033 6.1 78
2008 38,303 9.3 87
2009 36,906 -3.6 76
2010 39,475 6.9 74
2011 45,237 14.6 80

Sources: ASI, ICN processed

Table-15
Production of cement by companies, 2010-2011

(000 tons)

Producers 2010 2011

PT. Lafarge Cement Indonesia -- --
PT. Semen Padang 5,676 6,152
PT. Semen Baturaja 1,131 1,241
PT. Indocement Tunggal Prakarsa Tbk 12,638 15,102
PT. Holcim Indonesia, Tbk 5,618 7,131
PT. Semen Gresik, Tbk 8,939 9,792
PT. Semen Tonsasa 3,661 3,887
PT. Semen Bosowa Maros 1,812 1,933
PT. Semen Kupang -- --
Total 39,475 45,238

Source: ASI, Data Consult processed

Table-16
Producers and market share, 2011

Producers Production Share
 (million tons) (%)

PT. Semen Andalas --
PT. Semen Padang 6.2 13.6
PT. Semen Baturaja 1.2 2.7
PT. Indocement Tunggal Prakarsa Tbk 15.1 33.4
PT. Holcim Indonesia, Tbk 7.1 15.8
PT. Semen Gresik, Tbk 9.8 21.6
PT. Semen Tonsasa 3.9 8.6
PT. Semen Bosowa Maros 1.9 4.3
PT. Semen Kupang -- --
Total 45.2 100.0

Sources: ASI/ICN processed

Table-17
Domestic sales, exports and imports of cement, 2002-2011

 Total sales n ('000 tons)
 Imports
 Exports (000 tons)
 Domestic Total Total
Year sales Clinker Cement Exports sales

2002 27,173 4,184 3,791 7,975 35,148 60
2003 27,528 4,270 3,073 7,343 34,872 11
2004 30,192 4,673 2,946 7,619 37,810 17
2005 30,432 3,407 3,289 6,696 37,128 1,055
2006 30,695 5,023 2,245 7,268 37,964 1,280
2007 32,763 4,873 2,929 7,802 40,565 1,410
2008 36,539 3,301 1,641 4,942 41,481 1,532
2009 37,029 2,797 1,219 4,016 41,045 1,383
2010 43,683 2,141 763 2,904 46,587 --
2011 49,162 959 203 1,162 50,324 --

Sources: ASI, BPS, processed by Data Consult

Table-18
Exports of clinker and cement by countries of destination,
2010-2011

(000 tons)

Countries of destination 2010 2011

Srilanka 440,5 61,2
Bangladesh 451,1 520,6
Malaysia 651,8 136,1
Mauritius 240,0 --
Ghana 286,4 --
Australia 322,0 218,3
Madagascar 112,9 7,4
Timor Leste 98,8 121,6
Sub total 2.603,5 1.065.2
Other countries 301,2 127
Total 2.904,7 1.192,2

Sources: ASI

Table-19
Domestic consumption of cement, 2002-2011

Year Domestic consumption Growth (%) Consumption
 ('000 tons) per capita (kg)

2002 27,233 --- 130
2003 27,539 1.1 130
2004 30,208 9.7 140
2005 31,487 4.2 144
2006 31,975 1.5 145
2007 34,373 7.5 156
2008 38,080 10.8 162
2009 38,420 0.9 166
2010 40,778 6.1 172
2011 47,999 17.7 200

Sources: ASI, ICN

Table-20
Domestic consumption of cement by provinces, 2009-2011

(000 tons)

Regions Provinces 2009 2010 2011

Sumatra 8.872 9.690 11.028
 Aceh 958 877 854
 North 2.317 2.55 2.717
 West Sumatra 705 927 1.025
 Riau 876 993 1.316
 Riau Island 701 686 720
 Jambi 383 462 485
 South Sumatra 1.159 1.212 1.422
 Bangka Belitung 263 318 390
 Lampung 1.021 1.141 1.504
 Bengkulu 491 524 595

Java 21.126 21.920 26.515
 Jakarta 3.529 3.707 4.630
 Banten 1.837 2.005 2.779
 West Java 5.479 5.737 7.061
 Central Java 4.486 4.433 5.303
 Yogyakarta 601 613 763
 East Java 5.194 5.426 5.979

Kalimantan 2.436 2.872 3.361
 West Kalimantan 554 638 846
 South Kalimantan 631 713 838
 Central Kalimantan 326 453 506
 East Kalimantan 925 1.068 1.171

Sulawesi 3.003 3.046 3.527
 West Sulawesi 38 68 345
 South east Sulawesi 297 343 1.877
 South Sulawesi 1.669 1.573 85
 Central Sulawesi 396 419 482
 North Sulawesi 472 493 574
 Gorontalo 131 149 163

Nusa 2.174 2.335 2.779
Tenggara Bali 1.102 1.142 1.372
 West Nusa Tenggara 647 626 682
 East Nusa Tenggara 424 566 724

Maluku 802 914 791
& Papua Maluku 330 242 246
 North Maluku -- 132 147
 West Papua -- 28 37
 Papua 419 511 361

Total Indonesia 38.413 40.778 47.999

Regions Provinces Growth Growth Growth
 (%)2009 (%) 2010 (%)2011

Sumatra -0.5 9.2 13.8
 Aceh -8.2 -8.4 -2.7
 North 6.2 10.0 6.6
 West Sumatra -12.0 31.5 10.7
 Riau -2.1 13.4 32.5
 Riau Island -7.9 -2.1 4.9
 Jambi 3.6 20.6 5.1
 South Sumatra 4.4 4.6 17.3
 Bangka Belitung -0.1 20.8 22.9
 Lampung -4.6 11.9 31.8
 Bengkulu 14.6 7.0 13.4

Java 2.4 0.7 21.0
 Jakarta -2.9 5.0 24.9
 Banten -9.9 9.1 38.6
 West Java 2.7 4.7 23.1
 Central Java 9.6 -7.0 19.6
 Yogyakarta -16.6 2.0 24.4
 East Java 7.4 -2.2 10.2

Kalimantan -0.1 17.9 17.0
 West Kalimantan -1.3 15.2 32.6
 South Kalimantan 7.3 13.0 17.6
 Central Kalimantan -10.1 38.7 11.6
 East Kalimantan -0.2 15.5 9.6

Sulawesi 15.7 1.5 15.8
 West Sulawesi -- 80.7 407.9
 South east Sulawesi 17.3 15.3 447.8
 South Sulawesi 21.4 -5.7 94.8
 Central Sulawesi 8.9 5.8 15.0
 North Sulawesi -0.4 4.5 16.3
 Gorontalo 0.2 14.3 9.2

Nusa 7.8 7.3 19.0
Tenggara Bali 2.1 3.3 20.1
 West Nusa Tenggara 13.4 -3.2 8.9
 East Nusa Tenggara 14.7 33.6 27.9

Maluku -5.5 13.9 -13.5
& Papua Maluku -16..6 -26.5 1.5
 North Maluku -- 213.2 11.1
 West Papua -- 142.1 33.4
 Papua -7.6 22.1 -29.5

Total Indonesia 2.6 4.4 17.7

Sources: ASI, ICN processed

Table-21
New cement factories and expansion units, 2012-2014

Name of Location Production capacity
company (tons per year)

Expansion

PT. Semen Pangkep, South Cement-2,5 million
Tonsasa Sulawesi

PT. Semen a.Tuban, East Java Cement-2,5 million
Gresik b. Papua -Cement-600,000
 Packing plant and Silo
 -300,000
 -Quay-150 meters

PT. Semen Indarung, West Sumatra Cement-2.3 million
Padang

PT. Semen a.Baturaja, South Cement mill-300,000
Baturaja Sumatera Cement-1 million
 b. Muara Dua, South
 Sumatra

PT. Indocement a.Citeureup, West Java Milling
Tunggal Prakarsa b.Bau-bau, Southeast cement-2 million
Tbk Sulawesi Cement-1.9 million

PT. Holcim Tuban, East Java Cement-
Indonesia Tbk 1.7 million

PT. Lafarge Langkat, North Sumatra Cement-1.5 million
Cement Indonesia

PT. Semen Maros, South Sulawesi a. Cement-1 million
Bosowa Maros b. Cement transport
 ship

New Investment

PT. Semen Jawa Sukabumi, West Java Cement-1.8 million
(acquired PT.
Jaya Boral
Readymix)

PT. Semen Karawang, West Java Cement-1,0 million
Karawang

Anhui Conch South Kalimantan Cement-10 million
Cement Co Ltd of
China

China Trio Subang, West Java Cement-1.5 million
International
Engineering Co
Ltd of China

State Papua Cement-1 million
Development and
Investment Corp

PT. Semen Grobogan, Central Java Cement-1.5 million
Grobogan

Name of Investment Start-up
company year

Expansion

PT. Semen US$ 375 million 2012
Tonsasa (Rp 3,2 trillion)

PT. Semen Rp 3,5 trillion 2012
Gresik
 Rp 1, 2 trillion 2013

PT. Semen N.a 2012
Padang

PT. Semen Rp 350 billion 2012
Baturaja
 N.a 2012

PT. Indocement N.a 2013
Tunggal Prakarsa
Tbk N.a 2014

PT. Holcim US$ 450 million 2013
Indonesia Tbk

PT. Lafarge Rp 5 trillion 2013
Cement Indonesia

PT. Semen US$ 70 million 2013
Bosowa Maros US$ 50 million

New Investment

PT. Semen Jawa US$ 300 million 2013
(acquired PT.
Jaya Boral
Readymix)

PT. Semen N.a 2013
Karawang

Anhui Conch N.a 2014
Cement Co Ltd of
China

China Trio N.a 2014
International
Engineering Co
Ltd of China

State N.a 2014
Development and
Investment Corp

PT. Semen N.a N.a
Grobogan

Sources: Industry ministry

Table-22
Cement prices on domestic market, April-Mei 2012

Name of producers Brands Price per sack

PT. Indocement Tunggal Tiga Roda Rp 55,000
Prakarsa Tbk Rp 73,000 (white cement)

PT. Semen Gresik Tbk Semen Gresik Rp 53,500

PT. Holcim Indonesia Holcim a, Rp 42,000 (40 kg)
 Rp 54,000 (50 kg)

PT. Semen Padang a, Rp 49,000 (40 kg)
 b, Rp 51,000 (50 kg)

Sources: ICN processed

Table-23
Market shares of cement producers in Indonesia, 2011

 Domestic sales

Companies 2010 Share 2011 Share Growth
 (%) (%) (%)

PT. Indocement 12,582,611 30.9 15,121,873 31.5 20.2
Tunggal
rakarsa, Tbk

PT. Semen 8,911,382 21.9 9,974,480 20.8 11.9
Gresik

PT. Holcim 5,564,459 13.6 7,463,309 15.5 34.1
Indonesia

PT. Semen 5,260,192 12.9 5,820,858 12.1 10.7
Padang

PT. Semen 3,468,614 8.5 3,789,655 7.9 9.3
Tonsasa

PT. Semen 2,253,582 5.5 2,790,730 5.8 23.8
Bosowa Maros

PT. Lafarge 1,597,381 3.9 1,736,708 3.6 8.7
Cement Indonesia

PT. Semen 1,139,644 2.8 1,253,839 2.6 10.0
Baturaja

PT. Semen -- -- 48,442 0.1 --
Kupang

Sources: ASI, ICN

Table-24
Estimate of expansion of production capacity,
2012-2016

(000 tons)

Year Existing Additional Domestic
 Capacity capacity requirement

2012 60,569 3,749 53,435
2013 63,597 3,328 56,281
2014 66,220 2,623 58,085
2015 70,220 4,000 58,995
2016 73,029 2,809 61,496

Year Exports Production Cap.
 Utilization
 (%)

2012 3,500 56,935 94
2013 3,500 59,781 94
2014 3,500 61,585 93
2015 3,500 62,495 89
2016 3,500 64,996 89

Sources: ICN processed
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Title Annotation:INDUSTRY PROFILE
Publication:Indonesian Commercial Newsletter
Date:Apr 1, 2012
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